Forex Today: US Dollar loses recovery momentum before next batch of data
Here is what you need to know on Friday, December 5:
After staying resilient against its rivals on Thursday, the US Dollar (USD) struggles to attract buyers early Friday. In the second half of the day, the US Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditures (PCE) Price Index data for September, the Federal Reserve's (Fed) preferred gauge of inflation. Later in the American session, investors will pay close attention to the University of Michigan's (UoM) Consumer Sentiment Index report for December.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.51% | -0.80% | -0.97% | -0.20% | -1.15% | -0.66% | -0.06% | |
| EUR | 0.51% | -0.28% | -0.45% | 0.32% | -0.64% | -0.14% | 0.46% | |
| GBP | 0.80% | 0.28% | 0.08% | 0.60% | -0.36% | 0.14% | 0.74% | |
| JPY | 0.97% | 0.45% | -0.08% | 0.77% | -0.21% | 0.30% | 0.90% | |
| CAD | 0.20% | -0.32% | -0.60% | -0.77% | -1.01% | -0.46% | 0.14% | |
| AUD | 1.15% | 0.64% | 0.36% | 0.21% | 1.01% | 0.50% | 1.10% | |
| NZD | 0.66% | 0.14% | -0.14% | -0.30% | 0.46% | -0.50% | 0.60% | |
| CHF | 0.06% | -0.46% | -0.74% | -0.90% | -0.14% | -1.10% | -0.60% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Upbeat data releases from the US helped the USD hold its ground on Thursday. Challenger, Gray & Christmas reported that planned job cuts declined 53% from October to 71,321 in November. Additionally, the US Department of Labor's weekly publication showed that Initial Jobless Claims declined to 191,000 from 218,000 in the previous week. This reading came in better than the market expectation of 220,000. Nevertheless, the CME Group FedWatch Tool's probability of a 25 basis points (bps) Fed rate cut in December held steady at around 90% even after these figures, causing the USD's recovery to remain shallow. The USD Index stays on the back foot and fluctuates in negative territory below 99.00 in the European morning on Friday.
USD/CAD closed marginally higher on Thursday but retreated to the 1.3950 area early Friday. Later in the session, Statistics Canada will publish the November employment data. Investors expect the Unemployment Rate to edge higher to 7% from 6.9% in October.
Japan’s Finance Minister Satsuki Katayama said on Friday that interest rates are shaped by “various factors” and reiterated that the government will closely monitor market developments, pursue appropriate debt-management policies, and craft budgets with fiscal sustainability in mind. After closing marginally lower on Thursday, USD/JPY continues to push lower on Friday and was last seen down 0.3% on the day at 154.65.
EUR/USD lost about 0.25% on Thursday and snapped an eight-day winning streak. The pair regains its traction in the European morning and trades above 1.1650. Eurostat will publish revisions to third-quarter Employment Change and Gross Domestic Product data later in the session.
Following Wednesday's sharp upsurge, GBP/USD corrected lower on Thursday and ended the day with small losses. The pair holds steady at around 1.3350 in the early European session on Friday.
Gold struggled to make a decisive move in either direction on Thursday and ended the second consecutive day virtually unchanged. XAU/USD edges slightly higher early Friday and trades above $4,200.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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